JPY pulling for more gains

We’re none the wiser on Brexit today after none of the menu of indicative votes yesterday in the UK parliament passed even after May offered to resign if her deal is approved. May’s deal is getting increasing support from key Tory figures now on the fear that its failure would eventually lead to no Brexit at all. But a tiny group of hard Brexit ERG Tories and the Northern Ireland's DUP are holdouts and the indicative votes show that there is still no agreement on how to proceed on a failure of May’s deal.

More votes to are be held today – some clarity on where we go next surely emerges ahead of the weekend, but the long delay options may do sterling few favours.

The most prominent mover since yesterday has been the yen as it once again changes directions, this time back to the strong side, driven in general by the strong bid in the major sovereign bond markets and perhaps as well by fresh wobbles in high-yield EM, a threat to JPY-funded carry trading. EURJPY is down through support again and we put it back on our trading interest watchlist below. A further across the board extension of JPY strength likely will require a general deleveraging in risk assets that spreads to the major equity markets.

European Central Bank President Mario Draghi and other officials were out trying to reassure markets that the ECB would like to ease the impact of negative rates on banks, but specifics were few until this morning, when chief economist Peter Praet aired the idea of tiered rates for banks, in which only excess reserves over a certain amount would suffer the full weight of the negative deposit rates. This is a practice that the Bank of Japan already employs. But Praet said there would need to be a “monetary policy case” for tiering rates. Market impact of this policy negligible.

EM currencies have weakened considerably in spots, with the move a bit sharper than the sell-off in equities would point to, though there are signs of global safe haven seeking in major sovereign bond markets and emerging market spreads are a bit wider in recent sessions. The most volatility in recent sessions has been seen in the Turkish lira, where overnight implied yields have risen to over 1000% as the authorities discourage speculation ahead of the Turkish regional elections this weekend. The roll of spot positions from Friday to Monday today looks will be very expensive for TRY shorts – currently priced over 3%!

Trading interest

We are back to favouring JPY longs via USDJPY and EURJPY even after the recent crazy gyrations have shaken our confidence. Stops above 110.75 in USDJPY and above 124.50 in EURJPY
Still like AUDNZD longs here on dips as long as we stay above 1.0350.
Maintaining USDCAD longs with stops below 1.3330.

Chart: EURJPY

Euro sentiment is weak again as EURUSD slides toward 1.1200 again and Brexit worries remain, while the ECB is short on policy options to address the bloc’s growth slowdown. EURJPY is breaking lower below the key 124.00 level again after a recent false move  below that level. Ready now for a notable extension lower?